China Eximbank suspends debt service payments under all loan agreements with Government of Sri Lanka in 2023 and 2024

Project narrative

On April 12, 2022, the Government of Sri Lanka announced a ‘pre-emptive’ sovereign debt default, noting that it would suspend debt service payments to all external creditors other than multilateral institutions. Its decision to suspend external debt service reportedly affected all China Eximbank and China Development Bank (CDB) loans with amounts outstanding at the time of the announcement. China Eximbank offered a 2-year principal and interest payment moratorium to the Government of Sri Lanka in January 2023. Then, on October 11, 2023, China Eximbank and the Government of Sri Lanka signed an ‘agreement-in-principle’ regarding the key principles and indicative terms of a longer-term debt treatment. The ‘agreement-in-principle’ covered approximately $4.2 billion of outstanding debt. No details were disclosed about the terms and conditions. However, the China Eximbank debt treatment was reportedly comparable to the debt treatment under discussion with the Official Creditor Committee (OCC), which involved a mix of long-term maturity extensions and interest rate reductions. A public statement by Sri Lanka’s Ministry of Finance on October 11, 2023 also indicated that '[i]n the next few weeks, the Sri Lankan authorities and China [Eximbank] will actively work on formalizing and implementating the agreed parameters fo the debt treatment.' Then, in June 2024, Sri Lanka’s Ministry of Finance and China Eximbank signed a debt restructuring agreement, which extended a principal payment moratorium until 2028. However, during this 4-year grace period (2024-2028), the Government of Sri Lanka agreed to make all interest payments that were due. The June 2024 debt restructuring agreement also (a) rescheduled principal and interest payments between 2028 and 2043,and (b) set interest rates at no more than 2.1% during the 2028-2043 repayment period.